Oil Search Achieves Milestone with PNG LNG Project (Papua New Guinea)

 

Oil Search today announced activities report for the quarter ended 31 March 2011.

Commenting on the quarter, Managing Director, Peter Botten, said:

PNG LNG Project

Good progress was made at the PNG LNG plant site during the first quarter, with a milestone reached shortly after the end of the quarter with the first foundation poured for the Train 1 process area. Line clearing continued along the southern part of the onshore pipeline route and stringing of pipe commenced, while work continued on the upstream facilities of the Project, comprising the Hides Gas Conditioning Plant and the Komo airfield, and on building a training facility in the Highlands.

Consultation is ongoing between Project personnel, Government representatives and local landowner groups to ensure appropriate benefits distribution, contract award and employment for Project activities. These discussions are aimed at ensuring a continued stable working environment in the Hides area, with enhanced security for all personnel.

During the quarter, Oil Search advanced its two operated projects, the Associated Gas Project, which comprises work required to ensure the oil fields can deliver pipeline-specification gas, as well as commissioning gas, to the PNG LNG Project and the PL 2 Life Extension Project, to ensure the longevity of the oil export system. Both projects are progressing well.”

Production and revenue performance

Production of oil and gas in the first quarter of 2011 was 1.79 mmboe, 4% lower than in the last quarter of 2010. While oil production of 1.52 mmbbl was only marginally lower than in the last quarter, oil sales were 24% down, due to the timing of shipments. As a result, inventory levels increased from 0.307 mmbbl at the end of 2010 to 0.568 mmbbl in March, worth nearly US$70 million in sales revenue at present oil prices. Based on current shipping schedules, inventory levels at the end of June will be slightly lower than at end March and will decline further in the second half of the year.

The Company benefited from a steep increase in realised oil prices, reflecting global oil price strength due to geopolitical instability, particularly in our marker, Dated Brent. As a result, total operating revenue for the quarter was US$153.3 million, only 7% lower than fourth quarter revenue despite 24% lower liftings.”

Gas expansion activities

During the quarter, Oil Search continued to pursue its resource accumulation strategy in the Foldbelt/Highlands region and in the Gulf area.

One of Oil Search’s key focus areas is the planning of an integrated exploration and appraisal drilling programme in the Highlands, designed to mature resources for LNG expansion. Interpretation of the additional seismic acquired over the Angore gas field and the Huria lead in late 2010 continued during the quarter, with the latter targeting the finalisation of the Huria drilling location. A 2D seismic programme over a possible southern extension of the P’nyang field commenced in April, the results of which will assist in locating the P’nyang appraisal well, scheduled to spud in early 2012. The PNG LNG Project co-venturers continued to evaluate the logistics plan required to enable Hides appraisal/development drilling to commence in late 2011, which is the targeted timeframe.

In the Gulf Basin, Phase II of the Company’s original offshore 3D seismic survey was completed and acquisition of seismic over its new onshore and offshore Gulf region licences commenced. The seismic data is being processed progressively as it is acquired. Interpretation of the first phase of offshore 3D seismic data is progressing and has highlighted a number of promising drilling prospects, with drilling targeted to commence in late 2011/early 2012.”

Successful testing at Mananda 5

A comprehensive testing programme of the Mananda 5 oil and gas discovery, located 18 kilometres from the SE Mananda oil field, took place during the quarter. The test was successful, with four zones in the Toro and Imburu flowing oil at rates between 500 – 1,200 bopd with a Gas:Oil Ratio of between 600 – 1,200 scf/bbl. A longer flow test over the top Toro A zone flowed oil at sustained rates of 1,000 – 1,200 bopd and at rates of up to 1,900 bopd on a larger choke size.

The Mananda 5 well has now been suspended and various options are being considered for further evaluation and future development of the discovery. This includes a potential tie-in to the SE Mananda field, with a development decision targeted for late 2011.”

2011 production forecast unchanged

As part of the PNG LNG Project development plan, a number of modifications are required to be made to the oil field infrastructure so that the fields are able to provide pipeline specification and pre-commissioning gas for the Project. Preparations for this work are well underway. A two-week shut-down of the oil fields, which was previously scheduled for the second quarter of 2011, is now planned to take place in the third quarter of 2011. This shut-down was already incorporated into our production forecast for 2011, which remains unchanged at 6.2 – 6.7 mmboe.

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Source: Oil Search, April 28, 2011;